Democracy at Work: A Cure for Capitalism by Richard Wolff

Wolff introduces this book with the example of FDR triangulating between a Marxist union movement and Wall Street, which allowed him to create a fair amount of social democracy, including Social Security. He contrasts this will the recent crisis, where the only solution tried was bailing out the banks while doing nothing for the borrowers, who he sees as blameless, although I must admit that no one held a gun to my head when applying for too much consumer or housing credit, almost always in a cooperative credit union or government housing program. At least government helped when it came time to wipe out that debt, plus some medical debt as well. The answer Wolff proposes to Capitalism is the Worker Self Directed Enterprise (WSDE), which would make production, distribution and governmental decisions with local communities.

Chapter 1 shows where Capitalism is failing. The key feature in capitalism is not private ownership of the means of production but the fact of the labor surplus, where workers produce more for capital than they are paid in wages. Workers are divided into productive and unproductive. As a cost analyst, I am not sure this a distinction with a difference. Distribution is not productive, but you cannot get paid without it. Capitalism itself yields inequality, cyclical downturns and environmental devastation, as did state capitalism.

Keynesian interventions and regulations helped manage the pumps from the end of the war through the 70s, including and especially labor peace, although Capitalists fought back with Taft-Hartley and the Red Scares of the new right, from the Birchers to the Moral Majority. From then, the Neo-Liberals dominated both parties if they wanted to win, through the Obama presidency. The book was written before the insanity of Trump. Automation, women working, trade and outsourcing and immigration served the interests of executives who, in my analysis were given incentives to encourage these trends (and generally control worker pay) by the tax cuts and reforms of Ronald Reagan and George W. Bush. Without wage growth that kept up with productivity, borrowing became necessary, leading us to the Great Recession, which was caused when Asset Backed Securities and speculation in the NYMEX oil market collapsed (which Wolff missed).

Chapter 2 focuses on government responses. Wolff covers the interplay between ABS default at Credit Default Swaps ruining the credit market. Sadly, there are still those right wingers who think loans to poor people from Fannie and Freddie did them in. They won’t believe Richard. He also covers TARP bailouts and stimulus. (I gave Chrysler and GM a plan for using the bailout for effective employee-ownership. Not even the UAW gave me a response) Richard thought taxing the rich, especially corporations would help. It was not tried either. Here is where Wolff brings up the role of neo-liberal tax cuts in the last 50 years, and the right-wing argument that doing so restrains government waste (which it never has). Still no mention of the incentive to cut pay or keep it at inflation. Instead, he mentions that government debt hurt the ability of government to deficit spend its way out of the Great Recession. Instead, from Greece to the UK, the world turned to austerity. aka trickle up (which in the UK probably fueled the Brexit). He then describes the U.S. socializing losses and its too big to fail monetary policies in the wake of the crisis, yet jobs programs (nor mortgage debt forgiveness never materialized.

Chapter 3 concludes Part I by reiterating that private capitalism depends on labor surpluses generated by workers and is unstable. State socialism became state capitalism, with bureaucrats rather than workers controlling the worker surplus. Crisis has made more state control an option, but no good means of doing so has been worked out (Could Dodd-Frank be strong enough, unlikely).

Wolff does not address the reason that capitalists claim a right to the labor surplus, the assumption of risk by their investors. They exercise fiduciary responsibility over the company in their names. Indeed, they have enacted laws that make this a requirement of their jobs, with all other decisions
subordinate to that end. In that rationale, workers are mere factors of production, discardable at will.

It seems we have not moved much beyond slavery after all. State capitalists have a responsibility only to the state, but because they were responsible to everyone, they were responsible to no one except the Party. This was effective, but not enough to guarantee success. The politically connected could fail without fear of loss of position, so they did unless someone was watching, or at least succeeded on their own schedule.

In WSDEs, workers have both a fiduciary responsibility to themselves and a moral one. They are no longer factors. Indeed, in both socialism and capitalism, they bear more risk than the capitalists admit. Most workers do not have the wealth that would stop them from having to work and even if they did, until all medical and human services are automated, solidarity demands continued labor.

Workers have the most at stake. Investors only risk money and can move money into and out of various investments with a keystroke on their computer, or even let the computer do their thinking for them. Workers are giving up a day of what cannot be replaced, a day in their lives. That is more valuable than money, especially as one gets older. They also cultivate social relationships. While management considers them expendable, they and their follows have economic lives because they have jobs. Often, they cannot work for anyone else, so unless their employer provides all of the money and services they need to sustain themselves, they truly are slaves. Capitalists, on the other hand, both private and state, take all the goodies they can. Investors receive a ”normal” return, workers get as little as possible to keep them working and capitalists keep the rest, with CEOs often packing capitalist boards or party bosses with cronies who will give them all that they can steal. It is time for them to go.

Chapter 4 describes how capitalists distribute the surplus generated by employees, from sales personnel to shareholders and CEOs. In such firms, the board are the capitalists who make the decisions. The goal of decision making is profit maximization (including growth and market share), which can include automation, controlling labor markets and prices. Workers might use a union to alter decisions, but the capitalists generally call the tune and see to their own interests first, both in the company and in politics, which creates policy that hurts workers, who have less time and money to counter the bosses. Labor provided a counter-weight, which is why capitalists have-sought to decimate it. Even in 2007-09, public sector growth was resisted in favor of subsidized private sector growth. Since the book was written, Obama geeked in 2010 regarding letting taxes go up for the wealthy and the economy stayed stagnant. Indeed, further austerity actually hurt the recovery, although it did set the stage for the 2013 tax bill which let taxes on the rich go back up. Since then, the economy has been growing.

Chapter 5 deals with the problems of state capitalism. First, Wolff delineates the main differences between capitalism and socialism. Capitalism has the means of production owned privately (including, I would add, the employees), keeping the labor surplus for itself and using markets for supply and distribution. Socialism distributes labor surplus to the people and relies on central planning. There have been many socialist and communist experiments in the 20th century, from the welfare socialism of the Scandinavian countries to the Communism of Russia and China, which devolved into what Michael Harrington of DSA called Bureaucratic Authoritarianism or what Lenin called State Capitalism. Regardless, worker democracy has never been tried. Capitalists and Bureaucrats own and control the labor surplus, less taxes or social services, because of this lack of democracy. It is the difference between making lives better for the slaves and ending slavery (which is hardly ever totally successful, even in socialism - at least not so far).

Part III begins with Chapter 6 and an examination of Worker Self-Directed Enterprises. Wolff differentiates between the direct democracy of production workers in WSDEs and both capitalist and state capitalist boards of directors, who reserve all decision making to themselves. Only direct democracy has the workers control the means of production, according to Wolff. He contrasts WSDEs with ESOPs, which also have decision making boards (and in my experience, are not at all radicalized), worker-managed enterprises, which still delegate decisions to management and cooperatives, which have to do more with joint ownership than decision making by every productive worker. Coop boards function like any board of directors. Wolff is not a fan of representative democracy by workers, although if workers are self-aware enough, there are likely some things that can be done with representation and others where direct votes are required. I suspect most arrangements will not be adjusted very often, even in a WSDE.

Chapter 7 starts with a description of how decision making occurs in WSDEs. Some decisions are made by both productive workers, who make up the board and others by both productive workers and enablers. Frankly, I am not sure there needs to be a difference as direct production declines and customer contact workers, who are enablers, take on more of the creative edge responsible for profitability. Is market research not essentially the first step in production? If someone cleaning the shop floor between shifts enables production workers to not do so, are they not as essential? I suspect so. Some of this is Marxian orthodoxy showing up where it is probably no longer required. Indeed, if employees are not essential to the operation, the position should be abolished.

Wolff talks about how WSDEs may seek to make more such enterprises, but rather than reproducing by fission, I would suggest example and radicalization of other workers is the more essential goal. The question of managers is discussed. Wolff suggests rotating workers into these positions, as opposed to hiring them. I like simply electing them, from the CEO to the shop foreman, although before election, having candidates for these jobs (and there is always someone who wants to be the boss) bid for the position in open auction until the bidding gets to an agreed upon floor, with an election by the workers supervised to determine who gets the job.

Most WSDE’s will not clone themselves. Indeed, they should expand vertically along both the company supply chains from resource extraction to home delivery and the personal supply chain from education to housing to retirement (workers control the means of consumption), while avoiding horizontal integration to keep the market honest like it has not been for a long time. It will fall upon socialist consulting firms to help facilitate both new WSDEs and to convert existing companies to this technology, although such firms will have to walk the talk as well.

Wolff describes two kinds of employees in WSDEs, production employees and everyone else from cleaning crew to managers. Production employees would serve on the board and would allocate the labor surplus, while the remaining enablers would also participate in deciding on all other issues. Again, I am not sure how often issues need to be decided after setting up systems and how much can be delegated to management or to some representative body. If we are doing our jobs as socialists, the workers will be empowered to decide who decides.

Wolff compares technological change between private capitalism, state capitalism and WSDEs. Private capitalists do incorporate some technology changes, but also block innovation as well if the innovation would be expensive or hurt other products or related industries. This is why Europe and the US get different carburetors. Capitalists do the minimum. State capitalists do likewise unless it affects the state. WSDEs will have more than the Board make some of these decisions, especially about labor saving, Wolff suggests a government bureaucracy might be established to cushion the blow of innovation.

Both private capitalists and state capitalists have horrible environmental records. CEO benefit and investor profit maximization is hurt by taking up extra funds protecting the environment. Workers live closer to the environmental hazards their jobs create. They would be a more effective force in limiting pollution (although that is not universally the case if they feel their jobs are on the line because a co-worker is ratting them out). Better and cheaper pollution prevention and a strong government or industrial association to mandate their uses (and sponsor new technology) seems essential to me.

Wolff talks about how to compress minimum and maximum pay in WSDEs, suggesting rotation is the answer. I suggest an equal base wage for everyone, with additions for family size, which should be subsidized by the government in business taxes and using stock grants and dividends to reward innovation, educational attainment, longevity and management position, among other factors, would be dealt with. I have a whole essay on pay equity that does so on bindneranalytics blogger account, but let me briefly sketch some points.

Instead of setting them up in a new WSDE as Wolff suggests, innovators could be given cash bonuses for their inventions rather than higher salaries (most innovation is a riff off of existing technology that the WSDE would already own) and/or additional preferred shares based on the future profitability of the invention. Every instance may be voted on by the member directors or they could set up and vote on a system that consistently implements such decisions. They would decide which strategy they want to employ. With luck, such arrangements will both attract the best workers to these new enterprises and create better products and more profitability. This would force capitalist firms to adopt similar systems and essentially convert to WSDEs, although there are other ways to speed this up.

There is also the question of both layoffs and innovation. Should there be a fund for paying workers while they are retrained? Should it be governmental using taxes from WSDEs? I propose it could or workers could live off of the dividends from accumulated shares. Workers with enough shares could simply retire (with any mortgage held by the WSDE forgiven or paid while the worker is in transition). Indeed, if it does not make sense to retrain a worker, early retirement for whole cohorts is a good option. Should they continue to vote their shares? For that matter, should voting be warm body (with each worker having one voting share and earning a new preferred share each month, with or without dividend reinvestment) or should all shares be voting. WSDEs would make these decisions based on how much experience is important to making the right decisions for the whole. The more we need a bias for experience, the more share accumulation and retiree voting should be considered (like in the NFL). The more innovation is important, the less experience needs to be given preference. Wolff suggests that setting up new WSDEs could be a response.

Likewise, WSDEs could hire future workers while or at the beginning of either technical training or the third year of college, paying their tuition, living expenses, a stipend and maybe even some stock, at the discretion of the WSDE. This will give WSDEs the best employees, again forcing capitalists to follow suit. It also takes away any claim that members deserve higher salaries for their educations that they or their parents did not pay for. They may be given stock upon degree completion to provide a bit of extra income, as the market would for a while, but base wages would stay flat. If the work obligation incurred for this education (less any tax benefits provided by the government) does now work out, a government loan program would take the debt off of the WSDE’s hands and any stock grants would be cancelled or taken to lower the value of the debt.

Chapter 8 addresses ownership and markets. Socialism exists at the marco and micro level. Wolff suggests that one of the failures of the Soviet state was ignoring micro-level transformation. In WSDEs, the State could actually own the means of production, the WSDE members could or there could be conventional share system with some shares sold on the market. There could also be a mix. I do not favor state or outside ownership, especially if the WSDE or company offers employee-owners mortgage services, because without such ownership lending can be done at zero interest. Of course, WSDEs would decide for themselves. If there are shares, however, there will be share voting. If experience is important, then voting shares would be granted monthly (and if dividends are reinvested, additional shares would be added as well). Of course, this would make ownership top-heavy. To reduce this effect, voting shares would be granted less often, say one after the probationary period and another one every five or ten years, with preferred non-voting shares granted each month. Any outside investors would receive non-voting shares unless part of a reciprocal arrangement between WSDEs who provide services for each other (say, the local electric company). For absolute equality, everyone would get only one voting share. Again, WSDEs would decide. What should be mandatory is insurance of WSDE investments. A third of shares should be traded to an insurance fund to make members whole if the WSDE fails for whatever reason and to intervene if 18% of voting shares suggest to the insurance fund that management is failing or corrupt, so that the fund would take control of the WSDE to investigate and help members resolve the situation.

On the question of product markets, WSDEs could rely on central planning or on the commercial markets (which would likely be free for the first time with capitalism gone). On some projects, like rebuilding the transportation system, I would suggest partnerships between federal, state and local government, WSDEs, car companies and road construction companies, utility companies and any non WSDE employers to build electric cars with underground roadways, central computer control and energy from the ceiling (like electric trains) and interlocking share ownership where appropriate to govern the operation and to assure that retirees can use the system for free by cashing out preferred shares in both their WSDE and the electric company. The network would be national but ownership would be localized.

For most things, my axiom is that to secure control of the means of production, we must first give workers control over the means of consumption, not individually but collectively. If we can show that the cash and prizes are better collectively, workers will want to form WSDEs and use them to improve their lives. Currently, it is not vital because most workers think they have good or at least the best jobs they can get. This goes way beyond voting for a free cafeteria for breakfast and lunch (although it is always a good idea) or free business suits to WSDE owned home construction WSDEs and WSDE financing of them at zero interest, rather than using a credit union. This carries over into medical services, education and other governmental social services and even time shares at the beach and overseas (and airline vouchers). Implicitly, workers are given cash for these things and WSDEs could decide to continue, or we could build a cashless society and freeze out the financial sector entirely.

If there is any takeaway from this review, it should be ”Workers control the means of Consumption.”

Chapter 9 addresses Economic and Political Democracy. Capitalism does not like democracy and is designed to keep workers so busy that they really cannot if they want to. WSDEs will be smarter than that and will give workers practical experience in workplace democracy that can be extended to the political side (although I suspect some WSDEs will include representative governance, maybe through unions or professions to do the day to day decisions that management can’t do, although cash and prizes will likely be voted on directly, as well as CEO and management hiring). This is quite a difference from the forced authoritarianism of both private and state capitalism, which usually bleeds into our politics. Democracy will reverse the trend, at least to the extent that WSDEs do not absorb government services.

Even with workers in the majority, private and state capitalists kept control, as the election of Donald Trump, which happened after this book was published, as well as a long line of neo-liberals of both parties in the White House and Congress, illustrates. Economic issues, with the exception of minor changes to tax policy, are never discussed, with the Affordable Care Act being the shining exception, but even that was trapped by the Capitalists in a bill from the conservative Heritage Foundation that kept all the industries happy Usually, the parties use non-economic issues to distract the masses, especially issues like abortion where there is no real room for action by either side. That issue and raw racism is what we have now descended to, as well as the intervention by Russian Oligarchs, who the right wing now try to protect.

Wolff contrasts how FDR could use the CIO and radicalized workers to move along the recovery from the Great Depression. Obama had less luck because the capitalist hegemony gave him less room to work, especially with McConnell doing their bidding. Of course, many of FDRs innovative programs and more are now a part of the permanent government structure. His biggest problem, we now know, was in his own White House with Larry Summers counseling against mortgage forgiveness and on letting the Bush tax cuts expire in 2010. It turns out that once 2013 came around, with Summers gone, Obama was able to outmaneuver Grover Norquist and the Freedom Caucus and allow taxes on the top 2% of earners return to Clintonian levels (plus additional taxes from the Affordable Care Act). Since then, with rich people having less money to spend on shit investments, the economy has come creeping back and mortgages are finally no longer under water.

It is important to note that Capitalists with government in their back pockets have frustrated union organizing and ignored wage and hour (including peonage) and workplace safety laws, have passed ERISA to limit employee-ownership and Taft-Hartley to limit union-ownership. Reversing all of this must be a priority.

Chapter 10 talks about WSDEs in Modern Society. Capitalists engage not only monopsony in hiring workers and purchasing supplies (especially overseas), but in displacing smaller firms with larger monopolies and oligopolies. I would add franchises to the list, as these are how product distribution risk and labor organization are averted). WSDEs would collaborate and reverse this trend. Of course, I would simply try to take the larger firms over, probably splitting them up regionally and making them part of WSDEs. Their supply chains too. I would not forgo dividend payments to WSDE members, for reasons stated above, but would instead press for preferred financing at the Federal Reserve Discount Window to fund conversion costs. Wolff suggests WSDEs would be smaller (the Distributists do too). I disagree. He compares workers in capitalist firms with WSDEs in reaction to investment that might take jobs. I suspect that workers in capitalist firms will vote with their feet rather than resist in their old employments. Indeed, I suspect that Capitalists will have to start copying WSDEs, especially once WSDEs of larger size, say General Motors, are converted.

Wolff talks about differing economic flows between WSDEs and capitalist firms. On infrastructure they might be alike but different on public education (training worker board members v. drones), assuming WSDEs don’t absorb public education or send their kids to religious schools or charter schools (in either case they should demand a seat on individual school boards). Production location decisions will be different. WSDEs will work with local governments on Smart Growth. Capitalists demand concessions in order to come and to stay and may outsource or move anyway. Just look at the NFL, which, along with local governments representing the taxpayers and stadium workers, should become a WSDE (including retirees). Wolff and I agree that the WSDE can be exported to overseas firms, although I would do so by having multi-nationals become WSDEs and buy their supply chains, as well as encouraging by example (or just changing the market).


Wolff returns to differentiating production workers and enablers and stresses the need for political skill in defining limits between the two. I am still not sure they can be separated. I worry more about the Kelso model, which gives each member of the workers family capital credit to buy and then vote shares, which gives larger families more of a vote than smaller ones. Each worker should be equal. Production, however, demands less and less of the enterprise, especially when the creative work is done here and the labor is performed in Asia. In a multi-national WSDE, the Asian workers would be the entire board unless non-production workers are included. As long as the production workers have the same standard of living and voting power, I do not worry about appropriation of labor. Indeed, sales personnel are as expert as designers in what sells and why, whether you are selling pants or spacecraft. Should the community be involved in WSDE decision making? Yes, in joint ventures, especially in transportation, education, land use and fire protection (to the extent the WSDE does not absorb these functions, in which case the former government workers would be WSDE voting members as board members or enablers, although if you look at the enterprise as including the means of consumption the distinction has to vanish).

Chapter 11 addresses Program and Personnel for Increasing WSDEs. Wolff suggests a federal jobs program to provide money to form WSDEs on a New Deal model. I suspect most of the infrastructure needed to do that already exists (just like we already have DOE power plants, a Highway Administration and a General Services Administration). Starting new agencies is not required. Funding them is and electing people who will fund them is crucial. Of course, taxation on the wealthy has gotten the economy moving faster than it was when the book was written. Still, local Workforce Investment Boards, Chambers of Commerce, Community Colleges and One Stop Job Centers could take WSDEs on as a project, possibly with SBA assistance or loans. Indeed, with loans, money would not even have to be appropriated. Existing Community Colleges could be given a how-to course on WSDEs with concrete instructions and checklists of things to consider. Indeed, if the course addressed financing, SBA money could be foregone or just one option. This could be offered WIB by WIB or college by college without any obstruction from Trump, McConnell or the House Freedom Caucus and its Randian Speaker.

Other options suggested include working with Cooperative Movements, Trade Unions and I would add ESOPs. Indeed, instead of working with them to pass legislation, they could be clients in converting their enterprises to WSDEs one at time. WSDE Organic Intellectuals would be part of that first wave of consultants who learn by doing, not just by advocating and studying. This movement cannot, as yet, win at the ballot box. We must first Occupy Capitalism in growing this movement. Then we can equalize the Social Security Employer Contribution for Old Age and Survivors Insurance (every worker gets the same credit) and then using a portion of that credit to either buy Employer Voting Stock (for eventual WSDE conversion) or buy into the WSDE insurance fund, which would pay dividends to them (as well as to widowed survivors of WSDE members). We don’t have the votes yet, but we will, probably in a political party combining progressive Democrats, Libertarians and Greens. Once the racism of Trump kills the Republicans, the Neo-liberal Republicans and Democrats will join forces and the rest of us will head for the exits. Becoming a third party is lunacy. Being another major party must be the goal. To get there, however, we need economic power.

That is the second take away: Occupy Capitalism

How we do it is important. In 1992, Boris Yeltsin was using a DC consulting firm to help him convert State Capitalist firms to employee-owned ones. I was at IBM at the time and faxed them a memo on how to convert and manage these firms, including share distribution. I am not sure if they used my scheme or someone else’s, but their plan included the provision that the shares should be available for sale as opposed to being held for retirement or at least until resignation. I implied the latter and that one provision ruined Russia, because the stocks were valued at about the cost of a bottle of vodka, which they were traded for, giving rise to the Oligarchs and Vladimir Putin. Details matter, although I think making WSDEs keep all the shares in the hands of workers (and maybe retirees) and not letting them be sold outside of retirement or transfer to a new employer must be one of them.